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Global Economics

The World on Chinese Terms

China's government and companies no longer need Western investment, technology, or management expertise. Or so they may think

Despite the Olympics next year and the World Expo in Shanghai two years later, there are signs that China is closing, not opening, to much of the world. Last year this became noticeable in the government's restrictive new mergers-and-acquisitions regulations, which made foreign investment next to impossible in key industries. The list of industries defined as being important to the national interest has grown to include ball-bearing manufacturers and meat-processing plants. Add to this trend the growing evidence discussed by the European Union and the U.S. that China is holding rather tightly to the word but quite loosely to the spirit of many of the World Trade Organization agreements. And executives who have worked in China for many years complain that working and negotiating with their joint-venture partners is becoming tougher; agreements made earlier are often retracted. Being old friends, lao pengyo, was supposed to make it easier, but instead it is more difficult.

This could all be attributed to politics, of course. The government perhaps wants to show it is strong and ensure that foreigners do not get too good a deal. After all, everyone wants to get into the Chinese market: Those tantalizing 1.3 billion consumers await you! Perhaps too, the government and Chinese corporate executives have learned what they need to from foreign companies and no longer require investment, technology, or management expertise from the West. They have got it all already. The 17th Party Congress just underlined the resolve that China must become an innovative society. As far as investment goes, China already bankrolls U.S. Treasury bonds and a German airport, and is making interesting and increasingly diversified investments in Africa. Why should they need foreigners?

Preference for Chinese Brands

So is it the government? Certainly nothing really happens here for long without official support. But there are other signs that this anti-foreign sentiment is far broader. McKinsey, the management consultancy, recently published its newest study on Chinese consumer preferences, and the results are startling. The number of Chinese consumers stating that they trust and prefer Chinese brands over foreign brands has grown to an overall 53%. In some sectors, including pharmaceutical, health-care, and beauty products as well as household goods, the number rises to 70%.

Only in automobiles and electronics are the Chinese as likely to prefer a foreign brand as a domestic one. This is striking in a country where until recently Chinese would ask their friends traveling to Hong Kong or farther afield to purchase them cell phones and other goods that are easily available in China at a lower price. When asked why, the typical response was that they prefer to have an original, rather than the same product manufactured in China, perhaps by a joint venture. Surely, they implied, the original must be better.

There is a twist to the McKinsey survey, as the Chinese considered 50 of the best-known consumer multinational brands to be Chinese brands. But the implication remains the same. As Andrew Grant, managing director of McKinsey's Greater China practice, said, "This survey shows multinational marketers that emphasizing their product's foreign country of origin will not necessarily resonate with Chinese consumers." Indeed.

Little Global Perspective

It is not just consumers and probably the government that are demonstrating national pride. Chinese executives too have divided attitudes toward overseas partners and markets. A survey of Chinese managers by New Leaders International published in Fortune China in April, 2007, identifies some of the major gaps between Chinese management skills and global best practice. The "How Global Are You?" survey looks at a number of aspects, but the major difference between international best practices and Chinese manager responses is how open they are to the outside world.

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